Atomic swaps: even fewer middlemen

articles | Nov 27, 2018 | Crypto & Blockchain |

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One of the main areas that the whole blockchain community is focused on is the technology of atomic swaps. And not for a small reason. This development will completely eliminate the need for various intermediaries and third parties in order to conduct exchange operations between cryptocurrencies.

As it is already known, the main advantage of blockchain is that it allows people to exchange various valuables (be it money or information) directly, bypassing banks. But problems begin when the user wants to exchange one cryptocurrency for another. Until recently, it was necessary to go to an exchange (which is the same as an intermediary) to do this, but with the advent of atomic swaps everything has changed.

What is an atomic swap?

An atomic swap is an operation to exchange a cryptocurrency from one blockchain for a cryptocurrency of another, carried out without intermediaries. The first such transaction was made on September 19th, 2017 between the Decred and Litecoin networks. This feature was made possible thanks to a temporary smart contract that controls the integrity and transparency of the transaction through cryptographic evidence. If something goes wrong, the transaction is simply invalidated.

There are two types of atomic swaps:

On-chain swaps. They occur directly on the blockchains of exchangeable currencies. Network operations must use the same hashing algorithm.
Off-chain swaps. They are held outside the blockchain and are an extension of the Lightning Network protocol.

The future of atomic swaps

The future of atomic swaps is promising and, in terms of exchange operations, they may well compete with exchanges. Moreover, this war of exchanges is lost in advance, since direct interaction between people (especially when it is reliably protected) is always more convenient and easier than involving third parties and organizations. Of course, the exchanges will not disappear, but it is likely that their use in the future will be limited to playing with rates and they will become a gathering place for trading robots and professional traders, while ordinary people will use atomic swaps instead.